Death & Divorce and Their Disparate Effect on Marital Distribution in Pennsylvania

By Christopher C. Carr, Esq. Chester County bankruptcy attorney.

A stark contrast exists in the law of Pennsylvania as between the effects of death and divorce upon marital property distribution.  In the case of divorce, the marital assets, including assets nominally titled in the name of one spouse alone but purchased with marital assets, are subject to equitable distribution (ED) as between the spouses. In the case of and by virtue of death however, the deceased spouse (or more precisely, his or her estate) loses all rights in all property held in the name of husband and wife or otherwise subject to ED unless accruing to the estate under some other law. This is because there ceases to be any counterparty in the divorce action, which as an action in equity can then no longer proceed.  With few exceptions, summarized below, the surviving spouse takes all.

      However, there is a new exception to this death/divorce disparity which was entered into the Pennsylvania statutes in 2005. Recognizing that this had  produced some highly inequitable results, the Pennsylvania General Assembly sought to remedy this when Divorce Code amendments were considered. Section 3323(d.1) was added to the Divorce Code providing that where divorce grounds have been established by the date of death of the spouse, the divorce action may proceed with the executor for the decedent being substituted as a party for the decedent. To establish grounds the following rules are set forth by the statute: a)      If a fault divorce was pending the Court needs to have found that divorce grounds are established, b)     If both parties consented to the divorce, grounds are established, or, c)      Lastly in the no fault case, if an affidavit of two year separation was filed without contest or the court found two years of separation to have elapsed and the marriage was irretrievably broken, grounds are again said to be “proven”. Where grounds are not established as of the date of death, the old rules apply. The divorce ends and each party resorts to those rights created by federal laws like ERISA, the rights of joint owners to the decedent’s interests and the rights to take against the will under the Probate Code. Taper v. Taper, 939 A.2d 969,973 (Pa. S. 2007.) COMMENT:   As our population ages, one can envision this becoming a problem of epidemic proportions. There are obviously many situations which will not fall within the aegis of the 2005 amendment and appear left to chance. One obvious example would be a fault based divorce where no court decree finding grounds for the divorce has been entered as of the date of death. This writer suggests that thePennsylvania legislature will need to take more decisive action, terminating the inequitable operation of the old rules entirely under circumstances where it can be proven that the divorcing spouse knew or should have known of the dire health status of the other spouse as of the date of the divorce petition.

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  


©Christopher C. Carr, Attorney at Law 2009, 2013, All Rights Reserved

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The “A” in Bankruptcy Alphabet is for “Alimony”

By Christopher C. Carr, Esq., Chester County Bankruptcy Lawyer

One of the most disturbing changes in the Bankruptcy Code* enacted by Congress in 2005 for persons getting divorces and contracting marital debts is Section 523 (a)  which states in effect that an alimony, support or maintenance  obligation to an ex-spouse cannot be discharged in bankruptcy, but must be paid in full, with two limited exceptions:

  1. If a divorce decree specifies that an obligation to a spouse is alimony, but the obligation is not actually in the nature of alimony, then the obligation can be discharged in bankruptcy.

For example, Joe Dentist and Mary Dentist enter into a divorce decree which states that Joe Dentist is to pay a marital debt to The Joe Dentist and Mary Dentist Professional Corporation, where both practice dentistry, and further specifies that the husband’s payment of the debt shall be treated as alimony.  Joe Dentist may nonetheless be able to have this debt discharged in bankruptcy even though the divorce decree indicates that the payment of the debt is “alimony”, because such payments can be characterized as a capital contribution to the Professional Corporation and not as alimony.

2. Also, an ex-spouse may be able to discharge an alimony obligation if it has been assigned to a third party.

For example, suppose John and Mary Jones divorce. John Jones is ordered to pay Mary Jones alimony of $1,500.00 per month. John does not pay the alimony and Mary, who needs the money, assigns the right to collect alimony to her brother, Crusher Jones, who owns a profitable Junk Yard and feels the urge to pummel John. Crusher now gives Mary the $1,500.00 each and every month. Crusher now owns the right to collect the alimony from John. But John can escape the debt (if not the pummeling).  The alimony obligation can be discharged under Section 523 since it has been voluntarily assigned by Mary.

*The United States Bankruptcy Code (Title 11 of the United States Code) states in Section 523 that:

(a) A discharge under Section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt . . . (5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that (A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debts assigned pursuant to § 402(a)(26) of the Social Security Act, or any such debt which has been assigned to the Federal Government or to a State or any political subdivision of such State); or

(B) such debt includes a liability designation as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support . . . .

(enphasis added).

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality bankruptcy and debt relief practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Christopher Carr, a Chester County bankruptcy attorney, who has over 30 years if diversified ;egal experience, concentrates on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!  

I also provide Mortgage Mod Services .

©Christopher C. Carr, Attorney at Law, 2011, All Rights Reserved

For other articles on the letter A in the bankruptcy alphabet series, click here.

Other attorneys playing their “Bankruptcy A Game” include:

A is for Contract Assumption

A is for Adversary Proceeding

A is for Assets

A is for Assets

A is for Assumption

A is for Assumptions

A is for Attorney

A is for Automatic Stay

A is for Automatic Stay

A is for Automobiles

A is for Avoidance of Preferential Transfers  

A is for Avoidance

Law Offices of Christopher C. Carr, MBA,  P.C., is a quality Chester County Bankruptcy Practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Carr, who has over 30 years if diversified experience as an attorney, concentrates his practice on serving the residents of and businesses located within Western Chester County and Eastern Lancaster County, Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Sadsbury, Thorndale, Valley Township, Wagontown & West Chester,  Pennsylvania. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!

I also provide Debt Settlement; IRS Tax Settlement & Mortgage Mod Services NATIONALLY.

Photo Credit: Too Far North

Filing Bankruptcy: Pros and Cons

 

Christopher C Carr, Bankruptcy Guest Contributor

By Christopher C. Carr, Esq., Chester County Bankruptcy Lawyer

Tel: 610-380-7969 Email: cccarresq@aol.com Web: carrlaw.org

NACBA 1f18af63-1ee5-4ce2-8294-7eae8365f678

 

Christopher C. Carr , Esq., MBA explains the types of bankruptcy and weighs the pros and cons of filing bankruptcy.

In these troubled economic times many people are having difficulties paying their bills and may be wondering whether a bankruptcy will help them. To examine the various strategies available to avoid bankruptcy, we must first understand what bankruptcy is and what it can and cannot do. The United States Bankruptcy Code offers several types of debt relief. The United States Bankruptcy Code offers two primary paths for consumers:

  • A Chapter 7 Bankruptcy: In a so called “straight” bankruptcy, the Trustee in bankruptcy seeks to liquidate the debtor’s non exempt property and distribute the proceeds to the creditors in order of priority, in exchange for discharge of all of the debtor’s eligible debt. (Exemptions for various property classifications are set out in federal and state law.) However, certain debts such as guaranteed student loans and domestic support obligations are non-dischargeable in bankruptcy. Most 7’s are “no asset” bankruptcies.

Certain higher income debtors who do not meet the new Means Test must instead file a Chapter 13 Bankruptcy.

  • A Chapter 13 “debtor in possession” Bankruptcy: Here, unlike in Chapter 7 proceedings, the debtor retains possession of the assets (hence its nickname). In order to be confirmed by the court, the debtor must prove sufficient income to support a 3-5 year plan wherein payments on secured debt such as mortgages and auto loans (including arrears) and non-dischargeable items continue and unsecured creditors typically get paid a small portion of their debts. For debtors facing mortgage foreclosure, Chapter 13 may be the only choice to halt the process while seeking other remedies within or outside of bankruptcy such as a Home Affordable mortgage modification is obtained. However, recent statistics indicate that only about 35% of all 13 plans are ever completed.

There are overall limits as to how much unsecured and/or secured debt a debtor may have and still utilize Chapter 7 or 13. If either is exceeded then the debtor will have but one alternative if they wish to file for bankruptcy:

  • Chapter 11, a third type of Bankruptcy, is primarily used to help in debt businesses restructure. An example is the bankruptcy from which GM has successfully emerged with the help of a massive US bailout. It is much more complex, time consuming and expensive than Chapter 7 or 13, but is the sole resort for individual debtors with debt which exceeds the limits mentioned above.

Other Advantages to Bankruptcy: The overall goal of every bankruptcy case is to give the debtor a “fresh start.” The “automatic stay” in bankruptcy will apply once your case is filed. This generally halts all collection activities, foreclosures, repossessions, Sherriff’s sales, etc. while in effect.

Disadvantages to Bankruptcy:

  • Many people wish to avoid bankruptcy because of the social stigma perceived to be associated with “going bankrupt” even though it is perfectly legal and in fact is guaranteed by the US Constitution.
  • Bankruptcy remains on the debtor’s credit for up to 7 (Chapter 17) or 10 years (Chapter 13) from filing and may interfere with efforts to obtain credit, purchase or refinance a home or even obtain employment. However, it should be noted that most who seek this relief already have impaired credit and, more importantly, in reality new credit is generally extended to debtors who keep their payments current for a year or two following discharge. So, in effect bankruptcy can work to “repair” credit where nothing else can.

A real life example would be where the debtor has amassed so much debt that they cannot qualify for a mortgage.  Their debt to income ratio is just too high. At tins point there is little reason to hold off from filing as the likelihood of obtaining credit resources at competitive rates are almost nil. However, once the debt is cleared by a discharge in bankruptcy this ratio can return to normal or better and given sufficient time and a good post petition payment profile, the debtor will once again be an attractive loan candidate.

Homeowners, who have racked up large arrears in their mortgage payments which have to be repaid in full over the 3-5 year plan period in a chapter 13 , may find the payments too high to afford causing the bankruptcy ultimately to be discharged or converted, perhaps thus only delaying the ultimate loss of their home in contrast to a Home Affordable (HAMP) mortgage modification where as the name implies ideally a long term affordable solution is reached.

  • Not all types of debt are dischargable in bankruptcy, a good example being guaranteed student loans.
  • While perhaps not strictly speaking a disadvantage,  there is a substantial waiting period once a bankruptcy has been discharged…the debtor has to wait to file if they wish to again obtain a discharge from new debt, the timeframes varying with the type of bankruptcy initially undegone. For this reason, bankruptcy should be considered strategically.  When its gone, its gone, at least for a good long time!

The key point is that each debtor’s situation is unique and deserves special consideration. Further, because the process is hardly ever as smooth as it is supposed to be because of the complexities and pitfalls involved, it is advisable to consult a competent and compassionate attorney who has experience in bankruptcies and/or in negotiating modifications to guide you through the process and help you properly complete the paperwork.


MY AVVO.COM ANSWERS FEED:


©Christopher C. Carr, Attorney at Law 2009, 2016, All Rights Reserved

Christopher C. Carr, Esq. is a  Chester County Bankruptcy Attorney owner of Law Offices of Christopher C. Carr, MBA,  P.C., a quality Bankruptcy & Debt Relief Practice, located in  Valley Township, west of Coatesville, Pennsylvania, where Attorney Carr, who has over 30 years of diversified experience as an attorney, concentrates his practice on serving the residents of and businesses located within Western Chester, Southern Berks and Eastern Lancaster Counties in South Eastern Pennsylvania, including the communities in and around Atglen, Bird in Hand, Caln, Christiana, Coatesville, Downingtown, Eagle, Exton, Fallowfield Gap, Honeybrook, Lancaster, Lincoln University, Modena, New Holland, Parkesburg, Paradise, Ronks, Reading, Sadsbury, Sinking Spring, Thorndale, Valley Township, Wagontown, West Chester, West Lawn, & Wyomissing, Pennsylvania. Carr also has experience in many other areas of the law. If you reside or do business in the area and need assistance with a legal issue, please call Mr. Carr at (610)380-7969 or write him at cccarresq@aol.com today!

I also provide Mortgage Mod  and Debt Settlement Services.

IMPORTANT NOTE: I am not your bankruptcy lawyer, and nothing within this site creates that relationship.  Bankruptcy law requires that for me to be your lawyer, you and I must have a written contract.  So, unless we both agree in writing, you are not my client. Therefore, nothing written herein is to be relied upon as legal advice such as I might give to a client.

I am a debt relief agency. I help people file for bankruptcy relief under the bankruptcy code.